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Latest Revision April 29, 2020. Revised on April 22, 2020. Originally published April 15, 2020.
As predicted, the $349 billion loan amount available under the Paycheck Protection Program (PPP) was exhausted on April 16, only 10 business days after launching. Most practices were closed out and did not receive funding.
Fortunately, $310 billion of new funds will be used to replenish the PPP, with $60 billion of that set aside for loans by smaller banks and credit unions with assets under $50 billion.
The new law also added another $50 billion to the SBA’s Economic Injury Disaster Loan Program (EIDL), which provides working capital loans of up to $2 million practices can use to pay fixed debts and other bills that can’t be paid due to the coronavirus impact. Unlike the PPP, these loans are not forgivable, but must be repaid over 30 years at 3.75%. Another $10 billion was added for small business grants of up to $10,000 for disaster relief. These grants are forgivable, but count against your total loan forgiveness available under your PPP loan, if your practice receives one.
How to Improve Your Chances for PPP Loan Approval
As discussed above, most practices (around 80%) who applied for PPP funding did not get approved in the initial round. The common denominator for those (20%) that did – most applied through smaller banks and credit unions. Why did this make a difference?
To understand, you have to follow the money. Banks got paid a commission on the PPP loans they got approved. While it takes roughly the same amount of time to process a $200,000 as a $1,000,000 loan, the commission payment on the larger loan may be three times as much. Accordingly, most lenders (particularly the biggest banks) shuffled the loan requests, placing the largest loans at the front of the line. As a result, very few practices who applied for PPP loans through the largest banks got approved, while most practices that were approved went through smaller banks.
While the new law replenishing PPP funding is encouraging, most bankers with whom we have spoken believe the new funds will be exhausted within ten (10) business days, once the funding spigot was turned back on April 27.
Want to get your PPP loan approved? Make sure you apply through a smaller bank or credit union where your practice’s loan size will put you at or near the front of the line! And the new law provides added incentive, since $60 billion of the new funds are specifically allocated to smaller banks and credit unions with less than $50 billion in assets.
Don’t get shut out again, since there’s no guarantee that there will be additional funding when this round runs out. So, file your PPP loan application with a smaller bank or credit union now, if you have not previously done so.
New PPP Funding Rules for Sole Proprietors, Independent Contractors, and Partnerships
Doctors operating in these forms were not allowed to file their PPP loan application until April 10, one week later than other businesses. Doctors operating as unincorporated partnerships or LLCs must file their loan application in the name of the partnership or LLC.
On April 14, the SBA issued new rules requiring sole proprietors and independent contractors to base their maximum PPP loan amount on their 2019 schedule C net profit (up to a maximum of $100,000 annualized), and add to that the 2019 gross wages paid to employees (from Form 941-line 5c), employee health insurance and retirement plan contributions as deducted on Schedule C, as well as state unemployment taxes, to calculate the annual payroll costs. This number would be divided by 12 to arrive at a monthly amount, which should be multiplied by 2.5 to arrive at the maximum PPP loan amount.
Since the Schedule C net is computed before the doctor’s retirement plan and health insurance expenses are deducted, this calculation method places unincorporated doctors at a disadvantage relative to their incorporated counterparts whose PPP loan amount includes these items, in addition to $100,000 of salary.
UPDATE: Also see our follow-up article "8 Strategies To Maximize The Benefits Of Your PPP Loan And Forgiveness" for related information.
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The McGill Advisory content is provided for informational purposes only and does not constitute legal, accounting, or other professional advice.
Copyright © 2020 John K. McGill & Company, Inc.